There is currently an Ethereum merger that is supposed to make the Ethereum network 99.9% more energy efficient, and the market results so far have not been fantastic. Many investors are selling off their Ethereum shares, dropping the cryptocurrency’s value by several percentage points today. This comes after Ethereum lost around two-thirds of its value following an all-time high, from which the token has yet to recover. And it seems that many investors believe that the price will fall further if more short positions are placed against the cryptocurrency. The reason for this skepticism is due to the fact that the technical protocols of the blockchain change during its operation, which could potentially have some technical hang-ups. This will affect cost, release, and potentially security as a means of validating transaction changes. For more on the Ethereum merger and what Jaltech’s Gaurav Nair thinks will happen to crypto after the merger, check out the latest episode CrypTalk. More details in this article from The Wall Street Journal. – Ross Sinclair
Crypto investors increase bets against Ether as the “merger” approaches.
Ethereum’s high-stakes network overhaul comes with risks to security, concentration and the price of ether, according to investors and analysts
Written by Vicky Ge Huang and Caitlin Ostroff
Investors increased their bets against Ether, the second-largest cryptocurrency, ahead of a major software update to the Ethereum network scheduled for Thursday morning.
The price of holding a short position – a bet that the price of Ether will fall – in the perpetual futures market rose ahead of the upgrade, suggesting that investors are increasingly hedging their risk going into the network upgrade. So-called funding rates for ether perpetual futures, a type of futures contract that has no expiration date, have been negative for more than a month, meaning traders are paying a premium for pessimistic rates.
This could lead to Ether being primed for a short squeeze, during which investors will be forced to reverse their pessimistic bets, pushing Ether higher if the update is successful.
Many investors see the “merger” of the Ethereum network as a turning point for the crypto market. The update is designed to create a more efficient and less energy-intensive blockchain. A high-profile failure could send Ether crashing and undermine investor confidence.
A technical update is very difficult, in part because there are already thousands of applications running on the Ethereum blockchain. According to DeFi data provider Llama, around $33.5 billion worth of ether is currently held in 554 decentralized finance applications.
“It’s very hard for me to see how a full-featured platform with a market cap of around $200 billion can essentially change engines on the fly and not have security issues with all that complexity,” said Christopher Callicott, crypto venture. an investor in Trammell Ventures.
Code bugs and other network vulnerabilities can go undetected until deployment. The Ethereum Foundation, a non-profit organization that supports the blockchain, has offered up to $1 million for information on any critical bugs found in the network by September 8. the platform trades at a discount to the Ether cryptocurrency.
“People are nervous going into mergers,” said Ilan Solot, managing partner at crypto hedge fund manager Tagus Capital LLP. “Everybody’s trying to figure out how to position him up front.”
Ether derivatives that are locked on platforms such as Lido Finance, Coinbase Global Inc. and Binance, until the time of the transition to the Ethereum network, trade at a discount, which means that the derivatives are cheaper than their underlying asset.
The new blockchain, called the “Beacon Chain,” will operate on a proof-of-stake model where validators put their crypto holdings on the line to verify transactions. “Staked” ether tokens act as collateral that can be destroyed or confiscated if validators behave dishonestly. Existing Ether ownership will be automatically duplicated in the new blockchain.
Some investors were nervous because stakers are not allowed to withdraw their locked tokens until six to 12 months after the merger, when another upgrade of Ethereum called “Shanghai” is planned. Even then, stakers will have to wait in line to get their crypto.
However, staking has turned into a profitable business opportunity for crypto exchanges. The move to Ethereum allows Ether owners to profit from their Ether positions, further driving business to crypto exchanges that facilitate staking services.
Analysts at JPMorgan estimate that Coinbase will generate $650 million in annual incremental gross revenue and $80 million to $100 million in incremental net income from the bet.
If the merger goes ahead, critics fear the upgrade could bring centralization risks. As of September 9, four companies controlled about 60% of all ether stake tokens. Lido is the largest staker, accounting for 31% of the 13.4 million Ether locked in Ethereum’s proof-of-stake blockchain. After Lido, Coinbase, Kraken, and Binance together control about 30% of the total Ether tokens, crypto research firm Nansen wrote in a recent report.
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